TMI Blog2022 (9) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.Further, the alleged operators have not named the assessee as a beneficiary in their statements. In the light of the decisions of Andaman Timber Industries [ 2015 (10) TMI 442 - SUPREME COURT] and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. Appeal of assessee allowed. - ITA No. 2130/Ahd/2018 - - - Dated:- 25-2-2022 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member Assessee by: Shri K.P. Singh, A.R. Revenue by: Shri S.S. Shukla, Sr. D.R. ORDER PER: WASEEM AHMED, ACCOUNTANT MEMBER:- The captioned appeal has been filed at the instance of the assessee against the appeal order of the Ld. CIT(A)-3 relevant to Assessment Year 2014-15 2. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shree Shaleen Textiles Ltd. 09.04.2013 16578 16.09.2011 211 0 0 2 Do 10.04.2013 76165 16.09.2011 923 0 0 3 Do 11.04.2013 34236 16.09.2011 396 0 4 Do 18.07.2013 3141551 16.09.2011 26380 0 5 Do 05.08.2013 1097231 16.09.2011 9117 0 6 Do 25.09.2013 1900944 16.09.2011 15733 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in providing accommodation entry in form of bogus LTCG through sale of penny stock. It is seen that the entry operators in their sworn in statement has discussed the modus operandi as how bogus LTCG is being provided through penny scripts. The modus operandi discussed by the entry operator is produced hereunder for better understanding of the case as well as to make nexus with the case: In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices generally through the route of preferential allotment (private placement) or off market transaction. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. Thereafter, the prices of the shares of the penny stock companies are rigged and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the script of M/s. Shaleen Textile Pvt. Ltd. was bogus. The assessee relied on ITAT decision in the case of Dwani Mahendra Shah, Smt. Sunita Jain, ACIT vs. Bhavik Bharatbhai Padia, Pratik Suryakant Shah, Meena Dev etc. The assessee also placed reliance on the decision of ITAT in the case of Smt. Durga Devi Gupta Vs. ITO and Shri Mahesh Mundra vs. ITO. It was further submitted that appellant had furnished copy of contract note for purchase and sale of shares which is in the file of department ignoring the evidence and relying only on the report of the Investigation Wing, the Assessing Officer has reached to the untenable conclusion only based on suspicion and surmises. 7. The Ld. CIT(A) disregarded the contention of the assessee and upheld the disallowance made by the Assessing Officer. The Ld. CIT(A) while sustaining the disallowance made the following observation:- 3.3.2 The shares of Shrsha Tex (Shree Shaieen Textiles Ltd.) were having market price of share at around Rs.52.60 per share on 16.09.2011 and the price was hiked to more than 78 to 118 times (approx.) within span of one year. After that the price was fell tremendously and purchase price of shares declared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard. There is no economic or financial justification for the sale price of these shares. The so called purchaser of these shares has not been identified despite efforts of the AO. The broker company through which shares were sold did not respond to queries in this regard. Hence the fantastic sale price realization is not at all humanly probably, as there is no economic or financial basis that a share of little known company would jump abnormally. In these circumstances, I do not find any infirmity in the order of the A.O. Accordingly I affirm the same and decide the issue against the assessee, respectfully following the above decisions. Considering the facts of the case, I have no hesitation inholding that the transactions in purchase and sale of shares of Shrsha Tex (Shree Shaleen Textiles) for Rs.62,66,705/- were sham transactions intended to claim wrong exemption u/s 10(38) of the Income Tax Act and, therefore, I uphold the addition of Rs.62,13,945/- made by the Assessing Officer. This ground of appeal (on merits) is also dismissed. 8. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 9. The Ld. Authorized Representative be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination but only proceeded on the statement of Akash Agrawal and other operators to prove the case of the department. (vi) The assessee has proved that the purchase and sale are genuine and, therefore, in view of the Hon ble Gujarat High Court decision in the case of CIT vs. Mahesh Chandra G. Vakil (2013) 40 taxmann.com 326 (Guj) capital gain on sale of shares should not be taxed u/s 68 of the I.T. Act. Reliance was also placed on the latest decision of Nishant Kantilal Patel(2013-14/5/SRT/2019) vide order dated 07.01.2021 of Surat Bench of ITAT on the same facts. It was requested that based on facts of the case, appeal may kindly be allowed. The assessee submitted that the Assessing Officer has not been able to prove the existence of modus operandi as discussed by him in the assessment order. Since the Assessing Officer has not been able to prove that the cash was actually deposited in those accounts before the issue of the cheque for the sale price it cannot be said with this assessee has followed the modus operandi discussed as by the Assessing Officer or CIT(A). Moreover, the Assessing Officer or CIT(A) have not allowed the opportunity of cross examination of Akash Agraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. 16. The Delhi ITAT in the case of Suresh Kumar Agarwal vs. ACIT, ITA No 8703/Del/2019 held that the assessee has produced contract notes, demat statements etc discharged the onus of proving that he bought sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. He ought to have examined a number of issues (which are enumerated in the order) and shown that the transaction is bogus. The capital gains are genuine and exempt from tax. 17. The Mumbai ITAT in the case of Vijayrattan Balkrishan Mittal vs. DCIT, ITA No.3311/Mum/2019 held that the fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders. 15. The Hon'ble Apex Court held as under:- According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were thereafter sent to the company for the transfer in the name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Akash Agarwal may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.Further, the alleged operators have not named the assessee as a beneficiary in their statements. 20. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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